Linking Learners l BUSINESS TO BUSINESS LEARNING
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Briefs | |
| 45. Investment Challenges to Scaling Up ‘Inclusive’ Businesses. |
Scaling up emerging ‘inclusive’ business models presents many challenges to investors. Experiences over the last year show that transparent transactions along the value chain along with Cash-on-the-Bag (COB) payments to small farmers can be commercially viable. Social impact is demonstrable. Farmers regularly get 20% higher prices for their produce. Value chains operate at 80% efficiency with costs per deal being only 20% of total deal value. However, it is equally clear that such impact will not be enjoyed by large numbers of farmers unless investors come together and address the real world conditions of: very low skills of rural entrepreneurs in money management; in-grained cheating among all value chain players; poor infrastructure, legal systems and policies; and low speed and poor security of financial transactions within and between COMESA countries. The burdens on financing identified here require a close interaction should be established between public and private investors, but who and how should leadership be provided? |
| 44. Facilitating Value Chains the Missing Middle. |
A business opportunity exists for those who can provide services that solve the problems of the missing middle in agriculture value chains. Facilitating secure transparent transactions between small farmers and scaled processors with Cash-on-the-Bag payments to farmers (COB) is one such service. Key tasks for this service include: transparency in negotiations, quality checks, cash on the bag payments, checks on delivery, and controlled payment systems. Over the last year twelve trader networks across Kenya, Uganda and Tanzania have conducted some eighty deals benefitting over one thousand small farmers. Farmers get an average of around 15-20% more money into their pockets than if they sell through other existing channels. Value chains efficiency has been brought up to 80% with costs per deal being only 20% of total deal value. Of course there remain huge challenges to take this business opportunity to commercial scale. Lastly, others venturing into this opportunity might learn from the lessons we have had in: organising farmers, independence of service providers, trust and control, farmer cheating, starting out commercial, NGO constraints, public investment clarity, and advisory services roles. |
| 43. Impact of COB Deals on Smallholders. |
This brief presents a short summary of the impact of COB deals on smallholders and why they like COB deals. Over one thousand smallholders have benefited from COB deals. The value of trade so far has exceeded $170,000 US dollars. The dollar income to smallholders from this trade has been $155,000. COB deals increased smallholder prices by some 15% adding $15,000 more dollars to their income. Price increases were made possible by adding value and increasing the efficiency of value chain operations to around 20% of total deal value. With this kind of impact it is hardly surprising that smallholders like COB deals. However, their interest in COB it is not just about fair and better prices. They also like COB deals because: There are no price or payment games. They can get mobile money not cash. They get opportunities to add value. They get access to larger scale buyers. They get continued service across seasons. The can deal with a local entrepreneurs. They have their produce traced to cut out cheating. COB deals provide win-win solutions not just to smallholders and scaled processors but also to marketing itself. |
| 42. Learning Where Deals Can Go Wrong. |
Over the last year twelve trader networks across Kenya, Uganda and Tanzania have conducted some eighty deals providing cash-on-the-bag (COB) payment advances to small farmers using secure transparent transactions. While less than ten percent of the deals failed completely many experienced problems. In this brief we share the hard lessons learned in the words of the network managers. Farmers broke agreements by side selling, they reneged on volumes, and changed prices at pick up. Buyers cheated on deals by not honouring purchase orders, lowering prices at delivery, delaying or not paying. We had cases of fraud and cartels in markets. We had experiences of our own agents swindling the network by cheating on quality, diverting produce, side-using money and even stealing money. For most of these hard lessons ideas for solutions to try out emerged. The brief ends with solutions in: Improved due diligence; Proper documentation; Prompt payments; Alternative sale; Local and Legal redress; Secure payment systems; Contingency for unavoidable risks. All the lessons learned were captured in stories that are referred to here and available online. |
| 41. Traders Talk About the ‘Cash-on-the-Bag’ Business Model |
Over last six months some 160 traders and their agents across Kenya, Uganda and Tanzania have been testing a new business model for traders and middlemen. Traders’ use a ‘buy-low-sell-high’ business model that, like all speculation, rewards lowest prices to smallholders. Smallholders respond to low prices by cheating, ignoring quality standards, and bagging wet produce with stones and debris. Buyers respond by discounting prices to cover costs of quality rejects and cleaning. Such ‘coping’ behaviour introduces huge risks and lowers product value for the middleman. The Cash-on-the-Bag (CoB) model addresses this problem by providing up-front payments to smallholders within transparent and secure transactions, which reward higher prices to smallholders for high volume, quality produce delivered on time to the buyer. This new business model promotes ‘win-win’ agriculture value chains for smallholders, traders and buyers by: a) improving the efficiency of the value chain; b) improving the quality of the product; c) reducing the risks of transactions; and d) introducing fair prices for all. The new business revenue is a service commission to traders that is linked to farmer price. Therefore, it is in the interest of the trader to ensure that smallholders get the highest possible prices. Cash-on-the-Bag financing provided by Pride Africa gives traders using COB a chance to grow their business through commission as opposed to high-risk buying and selling. Rather than replacing ‘middlemen’, COB gives them an operational environment in which they can do their job much more efficiently. Or as one trader Beatrice Obara put it “The COB is trying to release the pressure on the buyers and traders so that they are able to turn over more deals and thus give more business to the farmers. The difference between COB and my business is that COB uses a transaction security operation where all those involved in the transaction (even the smallest farmer) benefit from it.” In this brief traders say they are switching business models because COB: increases business turn over, geographical reach, and improves trade efficiency and value. It builds client trust, farmer loyalty and solves buyer constraints. Switching, however, does have its challenges too! |
Transaction Security Services (TSS) with ‘Cash-on-the-Bag’ payments to smallholders addresses one of the most persistent and prevalent reasons for failure of agricultural supply chains in Africa: the absence of a secure and trustworthy transaction environment. Relations between smallholders and large buyers in Africa are generally characterised by significant distrust between the two parties. Smallholders are reluctant to hand over their produce without full cash payment up front, and large buyers are reluctant to make purchases without first inspecting the merchandise to ensure that quantity and quality correspond to specifications. Transaction risk is defrayed through many layers of middlemen, resulting in higher transaction costs, waste and consequent disadvantageous prices for both producers and eventual large buyers. TSS provides a more effective and efficient way for middlemen to operate. Transparent, commission based middlemen can offer a win-win situation for both parties to the transaction. This is the beauty of secure transaction environments.
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39. |
Services linking smallholders to markets must build trust between all players in the value chain and grow trade volumes to succeed commercially. Building trust requires not just transparency but also proper controls. Trust only comes with control. If there is no control, there can be no trust. Market linkage services must offer price discovery to buyers and sellers alike. Control measures are needed to track both the transfers of money and movement of produce. Building trade volumes is vital to low margin business like market linkage services. Such services must secure repeat business to reach commercially viable levels of operation. Market linkage services must pass on savings to farmers while remaining competitive with buyers. They must resolve outstanding issues with buyers and sellers after each deal. They must track the performance of all players in the value chain. This brief provides practical tips on building trust and trade based on two years of learning in developing market linkage services in Kenya, Uganda and Tanzania. |
38. |
Linking smallholders to markets is full of risks. Everyone knows that many things can go wrong when moving produce from farm to market. Sellers compensate for low prices with stones and debris or un-graded produce. Buyers compensate for interrupted cash flow with delayed payments. Some will cheat you completely. These are the obvious risks. But many more deals go wrong for more simple reasons: inadequate quality checks can result in buyers rejecting produce; an unplanned middle cost can wipe out any profit for the service provider; from farm to market produce passes through many hands and any one making a mistake can threaten profitability; mistakes in either the movement of produce or payments can cause failure. Such failures can be avoided by assessing the risks BEFORE deciding on whether to do the deal or not. Getting properly prepared before starting the deal also minimises mistakes. Practical tips for reducing risks and minimising mistakes, based on two years of learning in developing commercial market linkage services in Kenya. |
| 37. Risks Facing Market Linkage Service Providers. |
Linking smallholders to markets is full of risks. Risks arise from simple things like carrying around cash and getting your market prices wrong. Everyone knows that lots of things can go wrong when moving produce from farm to factory. Not following standards and regulations can also lead to losses. Less well known are the many ways buyers can reduce your profits or even cheat you completely. Undisciplined farmers can also drive up the costs of providing market linkage services. This brief provides examples from our experiences of some of these risks. Those offering services to facilitate transactions along value chains need to be prepared for such risks. The full story surrounding each risk illustrated can be read on our website. While this brief talk only of risks and where things go wrong our next brief will focus on tips and hits as to how these risks can be reduced. |
36. |
Many donors expect their NGO delivered, ‘subsidised’ services to become commercially sustainable. In this way smallholders would continue to enjoy better prices and better access to markets after project support is withdrawn. Of the many ‘successful’ interventions we have seen in East Africa none we know have reached commercial scale. This includes our own efforts in Kenya, Uganda and Tanzania. This brief highlights some of the ‘failed’ assumptions we made in our quest for commercialization. It also points out what can be achieved and what still needs to be done for efficient and inclusive market access services to reach commercial scale. |
| 35. Private-Public Partnerships: Key Areas for Intervention. |
We present key areas for intervention using Private Public Partnerships (PPPs) for pro-poor business development. Interventions focus where we think public donors can stimulate the provision of commercial services to improve small farmers’ access to markets. Key areas for intervention are: 1) Short-term trade credit to facilitate small farmer payment is made available eg. large-scale trials providing credit to transaction secure deals so that farmers can be paid ‘cash-on-the-bag’; 2) Rural entrepreneur networks expanded to reach commercially viable scales eg. enabling local mentors stimulate peer-to-peer learning on the ground and online; 3) User-led programming developed for SMS-Internet applications that will benefit rural areas eg. new applications focusing on market intelligence, tracking transactions, and peer-to-peer exchange; and 4) Pre-commercial R&D to be conducted on new ventures for rural entrepreneur networks eg., investment that take these ventures to the point where banks and commercial investors can pick them up. |
| 34. Developing New Services Needs an Effective Knowledge Management System. |
The Linking Local Learners (LLL) online platform www.linkinglearners.net has emerged as an indispensable tool for sustaining the critically important business-to-business learning between rural entrepreneurs developing new market access services through their local networks. The LLL platform has provided network members with a tool to generate and manage knowledge about their developing business operations. Network members generate knowledge through peer-to-peer exchanges assisted by mentors. Mentoring peer exchange is a critical support service provided by national service providers and RAVI. Mentors encourage peer exchanges between network members through workshops, visits to their businesses and facilitating online learning exchanges. Knowledge generation focuses on inventing and enhancing business operations and business opportunities. The knowledge generated through peer exchanges is captured in the form of operational procedures, stories of experiences, and briefs on lessons learned. These documents are then made available for use to network members on the LLL platform. |
| 33. Market Access Services: Steps Towards Commercialization. | Improving small farmers’ access to markets attracts much public interest these days. Sadly, projects are limited in scale and duration. They only benefit farmers inside the project area and the benefits stop when the project ends. In response, renewed efforts to improve small farmer access to markets include ‘commercialization’ of these services. Over the last five years we have been attempting to commercialize market access services in Kenya, Uganda and Tanzania with support from IFAD . We have identified five important steps towards commercialization of these services: The first step is establishing commercial relationships between business operators and their clients. Demonstrating the commercial viability of the business opportunity is the second step. Inventing how to operate a market intelligence service commercially is the third step. Transaction security services that handle everything for the secure movement of product from the farm to the factory as well as the movement of money back to the farmer is the fourth step. The fifth step is to overcome the distrust barriers with trade credit so farmers are paid 'cash-on-the-bag'.
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| 32. Facilitating Market Access: Potential Pitfalls for Public Programmes. | Over the last five years in Kenya, Uganda and Tanzania we have been implementing a number of IFAD supported efforts in the commercialisation of market access services for small farmers. A key operational feature of these efforts was Linking Local Learners (LLL) peer-to-peer learning Internet platform. As with most ‘hard’ learning the experiences we share here emerged from failures and mistakes. Despite the failure, or maybe because of it, these experiences provided us with valuable insights into how we might better facilitate market access for small farmers. Here we share five pitfalls we experienced that public investment programme designers and managers should be aware of. We also make some suggestions as to how they might deal with them in on-going or future programme designs. |
| 31 Pro-Poor Business Development |
RAVI's experiences suggest that developing pro-poor businesses requires a defined set of activities and milestones of achievement. Public investments have taken us from service idea up to commercial proof of concept. Getting from a viable commercial concept to a successful investment offer is the ‘investment gap’ that needs to be filled. We believe this to be the reason why publically funded project fail to produce commercially sustained services. Three ideas on how to bridge this gap are provided. |
| 30 Market transaction security services |
This briefing note answers some frequently-asked questions about market transaction security services. We start by explaining what transaction security is all about and why it is a business opportunity. We close with a few words on the challenges to setting up such businesses and why modern ICTsí make the provision of transaction security services in rural areas possible now. |
| 29 The Need for Market Reform Now. |
Marketing must be reformed and governments must step up to the challenges. The challenge is joint investment by public and private sectors. The challenge is public policy and private self regulation. Building market services that offer fair trade to all, are trusted, durable, reliable and that can operate at scale in a business where margins must necessarily be low is going to take a lot of money and a lot of time. Investing in a large scale operation thatís trading fairly with small farmers, is reliable and can endure the inevitable droughts is not for those who seek a fast return. |
| 28 New Food Shortages, Old Development Insights and the Need for Transaction Security |
Partnerships between the public and private sectors for a national common venture in transaction security are needed fast, otherwise today’s food shortage will be tomorrows crisis. AMSDP has shown a way forward but it is ending next year. There will be no bumper harvests in Tanzania unless a correctly constructed and resourced private public partnership is developed for transaction security in agricultural marketing. |
| 27 B2B Collaboration for Sustaining Small Farmer Market Access |
All players in the market chain want secure transactions for their produce and their payments. The business to business model presented is a search for ‘win-win’ solutions between many inter-dependent small businesses. |
| 26 Milestones in the Emergence of a Market Access Company |
Public funds are more likely to be effective when a clear set of milestones for commercial services are followed. |
| 25 Market access services go commercial |
To ensure continued flow of benefits to farmers from better access to markets, local market access services need to be commercially operated. |
| 24 Learning agenda for technical support to MACs |
Small, isolated, rural Market Access Companies need support from many different service providers at the national level to establish and run profitable businesses. |
| 23 Learning agenda on operating Market Access Companies |
RAVI groups will now be exploring how to set up Market Access Companies in around forty districts in Kenya, Uganda and Tanzania. The learning agenda includes how to: use Market Information Boards; broker deals and develop income streams. |
| 22 Online mentoring RAVI style |
After face–to–face exchanges mentors keep the learning agenda moving by prompting for ideas and experiences, refocusing the discussions and debates. |
| 21 Operational Strategy for improving market links |
Over the next two years the local learners in Kenya, Uganda and Tanzania will test their operational strategy for improving small farmer links to markets. |
| 20 Progressive policies for sustainable market development |
Support for: bottom up farmer rganizations; reliable connectivity; learning opportunities for marketing skills; commercial Rural Service Companies and National Company to support local market service companies. |
| 19 Lessons and challenges in rural knowledge management |
Rural knowledge management pays off, nearly two million dollars was the reported increase in turn over from seven districts in Tanzania in one season. |
| 18 Key factors for successful marketing |
Institutions to develop, behaviour changes to promote and development to support. |
| 17 How impact was achieved |
The roles of the district core groups and what they did. |
| 16 Impact on the ground from market access |
Increases in volume of crops marketed. |
| 15 Local expressions on impacts of learning |
Interviews with participants of the First Mile project on marketing changes |
| 14 Learning topics on improving marketing |
Learning challenges of farmer associations and service providers. |
| 13 Ideas on commercialization of services |
A new paradigm for sustaining agricultural services. |
| 12 Status and Achievements of LLL |
Who are the learners, what practices are they improving and what are the achievements so far? |
| 11 Longer term sustainability of LLL |
Recommitment to another year of learning through LLL. |
| 10 User Assessment of LLL |
Farmers assisted to improve their discussion of demand. |
| 9 Insights on Effective Use of Public Funds |
Learning not only builds capacity it also results in better ways of working in the field. |
| 8 Fostering Demand Driven Services |
Local practice in this programme is built on long years of experience of farmers and service providers in service delivery. |
| 7 Insights on employment and empowerment |
Evidence of empowerment is clear. |
| 6 Achievements of Users |
The assessment of experience with RAVI. |
| 5 The learning topics |
12 learning topics were identified. |
| 4 Internet Communication Practice |
How communicating between local groups stimulates innovation. |
| 3 The local learners |
The history of the local groups. |
| 2 Organisation of learning |
How learners rganized themselves first at the local level. |
| 1 Getting started |
The Linked Local Learning programme on Demand Driven Services is started. |